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Factors affecting demand in commercial real estate

By Greg Bell

Like anything in economics, the values of commercial real estate can go up and down with the market. And though you might not necessarily be able to predict the fluctuations of prices, an understanding of what factors affect demand in commercial real estate can help you make smart financial choices when you’re making an investment.

Location

When investing in real estate, whether it’s commercial or private, the importance of location cannot be overstated. Mo matter what you’re looking for in your investment, location will likely be the top factor you consider. Of course, one location can change desirability over time. What once may have been a slightly run-down or unpopular area may suddenly become the next hot spot. Keep an eye on real estate trends to get ahead of the curve and invest in real estate before it increases in value.

Economy

Another major factor that is difficult to predict in the long term is the economic demand for an area or business. Be sure to keep a close eye on the economy, as it can help you determine next steps that will benefit you and your investment. During a slower economy, for example, people might not be spending as frivolously, so affordable housing and other necessities would be a smart investment. During boon times, on the other hand, workers have a little more cash on hand and are willing to spend it on non-necessities.

Current owners

While they may be playing their cards close to the vest, any information you can find out about the current owners is likely to help you get the best price on your next real estate investment. But even if you don’t know much about the owners’ circumstances, you can tell a great deal by the property itself. If it’s an office space that has been standing vacant for months or even years, there’s a good chance the seller is eager to get a non-profitable piece of property off their hands.

Nearby properties

If the property you’re looking at is similar to many in the area, the demand for any given space will drop, as will the price. Before you invest in anything, check to see what other comparable spaces are in the area and how long they have been on the market for. If there’s a lot of stagnation when it comes to similar properties, the low demand can help you negotiate a better price.

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